California’s Aftermarket in 2023

By John Blodgett, MacKay & Company

In the last couple years, occasionally someone will ask me about the impact of the truck and bus regulations put in place by California’s Air Resource Board (CARB). I am certainly not an expert on reading and understanding regulations and I am okay with that.

In short, these regulations are a stair-step of rules governing what vehicles will be allowed to operate in California — with the goal of eliminating the older, worst-polluting vehicles by not allowing them to register as legal vehicles. These rules are aggressive compared with the rest of the country.

I do not want to address whether the regulations make sense or not. That is up to voters in California. Rather, I would like to examine the impact on the aftermarket for medium- and heavy-duty vehicles.

For this analysis, we decided to look at the aftermarket in California for 2023, the year when diesel-powered vehicles (and for this analysis we are looking at Class 6-8 trucks and school buses) older than model year 2010 will not be allowed on the road. There are a number of exceptions as their impact, I believe, is minimal and some wouldn’t apply to this analysis — like exemptions for RVs.

At MacKay & Company, we estimate the operating population for on-highway vehicles for Class 6-8 trucks, school buses and trailers in total, by state and by metropolitan statistical area. (We also have operating populations for transit buses, motor coaches, light duty and off-highway vehicles and for other countries, but for this we are just interested in Class 6-8 trucks and school buses.)

With no regulation impact, we estimate the Class 6-8 truck and school bus operating population in California in 2023 will be roughly 512,000 vehicles or 14 percent of the total U.S. operating population. These 512,000 vehicles will produce an aftermarket parts opportunity of just over $3 billion at retail.

If the vehicles older than 2010 are eliminated (193,000 vehicles), that aftermarket opportunity drops to $2.1 billion, or a decrease of about $900 million, nearly a 30 percent decline. But this assumes that none of those older vehicles are replaced, which is not likely — people don’t register and insure vehicles to park them — they are registered to put into use.

So, if those vehicles are replaced, the question is how many?

Given the vehicles would have to be replaced with newer, more expensive and more productive trucks, we don’t think it would be a one-to-one replacement. For this analysis, we estimate 60 percent of the trucks would be replaced, but these replacements also would be newer and because of that, the aftermarket potential for these vehicles would be reduced. When we add this potential back to the aftermarket demand for the vehicles still in the operating universe, the total aftermarket total is $2.9 billion or $142 million (4.6 percent) less than it was with no change. The one product area that benefits (increases) from this change is emission-related components.

So the overall impact by 2023 is not huge, but there definitely is an impact. And what about those 193,000 vehicles that can’t be registered in California? Some will be scrapped, some will be cut up and sent to Mexico (and maybe put back together) and the majority will supplement the inventory of used trucks in other, primarily western, states.

John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at john.blodgett@mackayco.com.

Commentary: Bring on 2021

By John Blodgett, MacKay & Company

It’s just another normal day in 2020 while I write this month’s column. I am working from home today, which for most people is the new normal. This year I have been in the office every day (except for most weekends, holidays, vacations and “I can’t take it” days). I used to be on the road most weeks (pre-COVID), whether it was for a day or two or a couple of weeks. I have pretty much always done that for 30-plus years — until this year.

To everyone who is used to going to the same office every day, all week, I have a new respect for you and an appreciation for the “Groundhog Day” movie.

Our office is close to where I live, and we have an old school office with plenty of space. Most folks have offices with walls, so anybody who wanted to, after June 1, could come to the office. We did determine that we really don’t need an office — or maybe not such a big office — but luckily, last December we signed a new five-year lease because timing is everything.

I am working at home today because my water heater failed last night. I called to set up a time to get it replaced and the guy said they would call before they came. I said, “Good, because it will take me 25 minutes to get home,” to which he said, “Glad you told me. We just assume everybody is already home these days.”

But it is a good day to work at home as there is an NFL game on — just another Wednesday in 2020. So now I have two masked men in my house. I did not call the cops as I believe they are just replacing the water heater. I think that’s what they told me, but I have this problem that whenever I put a mask on, I have trouble hearing. I do have a nice cloth mask (rated at N14 — nowhere near N95). I left it on today in my car because it kept me warm, like a scarf.

I can’t wait for 2021.

I joke, but the good news is there appears to be a light at the end of the tunnel with multiple vaccines on the way. In addition, most of MacKay & Company’s aftermarket activity measurements have been more positive than we forecasted, and while our forecasts are not always on the mark, we don’t mind as much when things are better than forecast. We will still end the year (aftermarket parts sales) down compared with 2019, but not as bad as we initially anticipated in April.

Outside of our measurements, anecdotally, there certainly seems to be more trucking activity. Last week I had three deliveries scheduled for my house. None of them arrived when scheduled (two did arrive this week) and I did get a fourth delivery, but it was delivered to the wrong address, so I don’t think that counts. On my street, we are not typically seeing a Class 6-8 truck dropping packages off, but these trucks are delivering to the last milers who are, lately, always on our street. I think the problem in getting these packages as scheduled is due to both capacity and COVID-related issues for the carriers.

This year I have had other COVID-related conversations about the country having enough refrigerated trailers for bodies and now for vaccines. I am more than ready for 2021 post-vaccine and normal conversations about the aftermarket.

John Blodgett has worked for MacKay & Company for more than 20 years and is currently vice president of sales and marketing, responsible for client contact for single- and multi-client projects. He can be reached at john.blodgett@mackayco.com.

Aftermarket Outlook: Still down, but improving

By Travis Kokenes, MacKay & Company

A couple of months ago in this column, we indicated our initial forecast for the 2020 parts aftermarket would be down 19.6 percent from 2019. At the time, in late May, nearly all the country was experiencing some form of shutdown orders related to the pandemic and every student was learning remotely to close out the school year.

Since then, we have completed our second quarter fleet utilization survey, and while significant drops were seen across all vocations, they weren’t quite as bad as initially predicted. Total Class 6-8 utilization for Q2 did decline just under 20 percent from comparable 2019 levels. However, when school buses (which were at nearly 0 percent utilization) are excluded from this measure, the drop was only 13 percent year over year. Compared with the historic drop in Q2 GDP, the industry seems to be weathering the storm better than others.

Furthermore, fleets responding to our more recent, monthly miles-driven survey indicate current levels to be off 5 to 7 percent  with year-to-date miles driven down around 10 percent versus 2019. The full results of our Q3 utilization survey will be ready by mid-October and will certainly shed more light on expectations heading into the end of the year and start of 2021.

So, what does all this mean in terms of aftermarket parts sales?

We anticipate sales will be down somewhere between 10 to 15 percent on average. But recent research with dealers and distributors makes it clear this will range drastically. We’ve heard of folks who’ve seen drops of 30 to 40 percent  and believe it or not, some who have seen rather sizeable increases in year-over-year sales. A lot of this depends on the types of customers one serves, as certain industries have experienced much larger declines than others, oil/gas being one example.

Fleets have indicated to us they have made changes to their maintenance and repair activities as a result of the pandemic as well. While the vast majority (75 to 80 percent) say they have not, a large enough portion has, which will have an impact on the aftermarket parts business.

Around 10 percent of fleets indicate they’ve extended maintenance intervals and/or predictive maintenance activities. Five percent have outright delayed needed repairs (non-critical) and/or indicate they’ve started to purchase more all-makes over OE genuine parts. Nearly 10 percent also say they plan on keeping their vehicles longer than they normally would, likely resulting in major repairs they otherwise wouldn’t complete; lost business for new truck salespeople and potential new customers for the aftermarket side.

The good news, which is well overdue this year, is most fleets, dealers and distributors have a positive outlook for the remainder of 2020. Times are tough, no doubt about it, but for those who’ve been in this industry long enough to know, the trucking economy is resilient, and we may yet come out of this most recent downturn stronger than ever.

Several dealers and distributors have told us this unique moment in history has allowed them to take a closer look at their businesses, identify problem areas and examine more closely potential opportunities for growth. Whether this is through new or improved e-commerce platforms, inventory management systems or just general operating efficiencies, all should translate into a better overall experience for customers.

As we’re now all accustomed to, much can change between now and the end of the year. A possible fall resurgence of coronavirus may very well lead to additional shutdown orders and school closures; dropping temperatures across much of the country will certainly cause a decline in business for restaurants, bars and other outdoor venues who’ve seen a somewhat return to normalcy this summer; and that’s to say nothing of the upcoming presidential election.

One thing however is certain, those who are most closely aligned with customers’ needs during these uncertain times and who are taking advantage of the current situation to make necessary changes to their business practices will be the ones to come out ahead.

Travis Kokenes, market research manager, has been with MacKay & Company since 2007. He currently heads the company’s research department and handles the data collection and processing for all its DataMac and proprietary studies. 

He oversees the design and implementation of all the company’s phone, direct mail and web-based surveys; working with clients to develop questionnaires that fit their specific areas of interest. He also handles data analysis and reporting for many single client projects and authors MacKay & Company’s monthly DataPulse Plus publication which tracks parts, service and inventory changes among dealers and distributors in the U.S. and Canada.